Hedge Funds Ask SEC to Look Out for Subprime Manipulation

A group of hedge funds sees potential bond manipulation on the horizon, and is enjoining the SEC to watch out for these bonds backed by subprime lenders.

Michael Waldorf, a senior vice president at Paulson & Co., told the SEC that investment banks may pay inflated prices to buy bad loans that are collateral for bonds.  The quote was reported on Bloomberg.com.

“We hope you will clarify the application of the anti- manipulation provisions of the federal securities laws to credit default swaps in order to assure market participants that no one will be allowed to engage in manipulative practices,” Waldorf said in a letter sent to the SEC and Bloomberg News.

It’s estimated by some industry insiders that bondholders stand to lose as much as $75 billion on securities made of mortgages to people with poor or limited credit histories because of a rise in defaults.